What is Multi-Unit Franchise?
Instead of growing only one location at a time, many franchisors decide to offer the option of a multi-unit development agreement to prospects in addition to a single-unit offering. A multi-unit development agreement (referred to as a MUDA) is where a franchisor grants a franchisee the rights and obligation to open and operate a specific number of locations during a defined period of time, usually within a designated and assigned territory.
A Multi-Unit Agreement will have precise dates that the franchisee is required to meet – purchased, open and operated dates. There can be legal repercussions if these location dates are not met. A multi-unit agreement, or relationship, can have significant advantages for both the franchisor and the multi-unit franchisee; but it cannot be overlooked by the franchisor to be sure that the franchisee is properly capitalized for any chosen venture, especially those with more than one location commitments.
Advantages of Multi-Unit Ownership
From a franchisor’s perspective, finding one great franchisee who manages multiple locations is helpful for efficiency and communication. Having one great franchisee across multiple locations is better than having a handful of less-engaged franchisees.
Additional advantages of multi-unit ownership include:
- Increased sales volume
- Avoid the risks of losing a desirable territory/location or possible price increases when committing early
- Ability to diversify locations owned, which helps mitigate potential risks (for example: if one location doesn’t perform well, the franchisee still has others)
Disadvantages of Multi-Unit Ownership
With multi-unit ownership, the franchisor is putting additional trust in a single franchisee across multiple locations, which can put some strain on the relationship if the franchisee does not live up to expectations.
Additional disadvantages of multi-unit ownership include:
- Larger upfront costs
- More upfront risk and pressure
- Cash flow challenges
- Requires more staff, time and resources
More Info on Multi-Unit Ownership
Listen to our podcast episode “Multi-Unit Multi-Brand Franchising: Building a Local Empire” for more information on multi-unit franchising.
